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When to get Prof. Liab. Ins.?

When to get Prof. Liab. Ins.?

When to get Prof. Liab. Ins.?

(OP)
When should I get Professional Liability Insurance? I just took the SE and am waiting on my results to come in after the new year and and am expecting a passing score. I have made a few contacts with home inspectors that can possibly refer me structural inspections. I have not started anything yet. I am not about to quit my job but want to be able to make some extra money on the side and see where it goes. And I am in the process of filing an LLC for this structural inspections business. I have been told that I don't need insurance until I start making around $10k a year with this side business. Otherwise, it would eat my profit. Has anyone gone through this before? Any advice is much appreciated.

RE: When to get Prof. Liab. Ins.?

If your state doesn't license home inspectors (a lot do), and you really can get work from

Quote (possibly refer me structural inspections)

your contacts (not a sure thing to me), I'd call a lawyer. Any professional practice where you privately offer your expertise for reimbursement, might get you sued. And there's no minimum that you can't get sued for.

RE: When to get Prof. Liab. Ins.?

I know some engineers "go naked" with respect to insurance and many, I believe, set up their LLC or corporation and are very careful to keep their personal finances and business finances separate and all engineering work goes through/under the corporation. Thus, if sued, the theory goes, the suit must be to the business and the owners of that business are personally protected by the corporation. So with a small entity (one person engineering firm) the firm would simply go bankrupt if sued and the engineer's personal property (home, bank account, etc.) would be protected.

I don't know if this works in actual practice - just what I've been led to believe.

So per Jed - call a lawyer.

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RE: When to get Prof. Liab. Ins.?

Been naked for years JAE, but don't tell anyone.

Mike McCann, PE, SE (WA)


RE: When to get Prof. Liab. Ins.?

Yeah, talk to that lawyer. I did. When I got my P.E. I worked for an Oil & Gas company. I was summoned to the corporate offices to get "the P.E. talk" from the corporate attorney's. What they said was:
  • We are happy that you got your license, and we are happy to have paid your cost to prepare for the test and to take it. Having P.E.'s on staff improves our corporate credibility. We will not pay for you to get a stamp because we would rather you didn't even have one.
  • If you stamp anything, and you get sued, the company cannot defend you, we can't defend you to the point that your pay will be docked for time spent with your counsel (that we can't pay for) or in court.
  • If you form a corporation of some sort to hide your assets, it will not work because suits against P.E.'s must be filed against the licensed individual, not his company.
  • In short, unless you are insured (and the company cannot pay for that either) DO NOT STAMP ANYTHING. EVER.
That was the advice I got. Your attorney may give you different advice.

David Simpson, PE
MuleShoe Engineering

In questions of science, the authority of a thousand is not worth the humble reasoning of a single individual. —Galileo Galilei, Italian Physicist

RE: When to get Prof. Liab. Ins.?

When do you get insurance? I would say it depends on how big your coconuts are. I don't have coconuts, too cold to grown them here in the north east, so I carry PL insurance.

I routinely talk to an old timer all the time. He is getting ready to retire a few years ago he told me that nobody can do "a little engineering". This is because insurance will eat up all of your profits and you will not make any money making the business not worth it. At this point, it takes about one month of income just to cover my PL policy. So I can see where he is coming from.

This reminds me...... I have to go pay my PL installment payment today.

RE: When to get Prof. Liab. Ins.?

"About a month of my income [budget]" goes to insurance. That is what I pay too, but this year I've rarely made my income budget so it is closer to 2 months of what I'm actually making. Maybe things will get back to normal next year.

David Simpson, PE
MuleShoe Engineering

In questions of science, the authority of a thousand is not worth the humble reasoning of a single individual. —Galileo Galilei, Italian Physicist

RE: When to get Prof. Liab. Ins.?

zdas04

Sorry to hear that. Been on my own (not really my decision) for about 2.5 years now. This year was OK.... next year is not looking so hot at the moment.... but it could be the time of year it is.

RE: When to get Prof. Liab. Ins.?

What about people working under a PE who will also be getting their PE? My boss has PL insurance but is the bottleneck for our company and we really need another PE. Thus, I imagine my boss will want me to put my stamp to use. I assume I can get on his PL insurance for a small increase in the cost?

Yes, I know this is something I should just discuss with my boss but I figured it would add to this interesting discussion.

Maine EIT, Civil/Structural.

RE: When to get Prof. Liab. Ins.?

(OP)
Thanks for all of the replies.

I am aware that the LLC will not shield the engineer from being sued. It is a small fee in my state to set one up, so I am doing so more for tax reasons and marketability.

I spoke with a more senior engineer on this subject. He said that I shouldn't get insurance until I have enough income from this side business to pay for it. And with the structural home inspections, I will not always need to stamp the report. And I do not think that I will be doing a lot of design, at least at first. He also said that I could use his stamp until I get my own.

A good point was made earlier. I am trying to do a little engineering on the side and avoid any unnecessary costs. Does it make sense to get PLI for a business that makes $5k annually when the same PLI plan would work if I were making $125k annually?

RE: When to get Prof. Liab. Ins.?

This is definitely something you should discuss with your boss when you get your license. There are options your company has. You need to make sure you are protected and nobody is going to do that for you but yourself.

If you end up sealing drawings you also need to discuss what happens to the insurance if:

1)You leave and go to work with another company
2)Your boss dies
3)Your company goes out of business.

I eluded in my last post about being a consultant wasn't really my decision. Item #2 and item #3 happened within a few months of each other. I had previously discussed item 1 with my company but never gave a though to item 2 or 3. It was not a comfortable situation and was a huge problem that could have been prevented had I actually given thought to item 2 and 3.

RE: When to get Prof. Liab. Ins.?

Structural

I am not entirely certain, but if I remember correctly, according to my carrier, there are minimums with regards to insurance and premiums. That is, it doesn't matter if I bill $5,000 or $100,000 I am considered a small company and am billed a minimum amount (which believe me, its minimal). You may want to discuss with your agent.

RE: When to get Prof. Liab. Ins.?

Structural: My boss does home inspections and recently someone tried to take legal action against him because apparently he was supposed to see a rotten sill plate though a wall with no access to the sill and was also supposed to somehow prevent the contractor from charging 4 times more than it should have cost to fix it. He has a clause in his inspection agreement that states he is only liable for the cost of the inspection and nothing else (along with typical inspection language about how you can only report what you can observe and so on). Anyway, this stood up to legal scrutiny so, unless you did something grossly incompetent you might discuss such things with a lawyer and find that PLI may not be required for inspections that do not require any actual engineering.

Maine EIT, Civil/Structural.

RE: When to get Prof. Liab. Ins.?

Quote:

I know some engineers "go naked" with respect to insurance and many, I believe, set up their LLC or corporation and are very careful to keep their personal finances and businessfinances separate and all engineering work goes through/under the corporation. Thus, if sued, the theory goes, the suit must be to the business and the owners of that business are personally protected by the corporation.

I do not think this works with professional liability like it does with general liability. Otherwise, nobody would ever get insurance.

Hydrology, Drainage Analysis, Flood Studies, and Complex Stormwater Litigation for Atlanta and the South East - http://www.campbellcivil.com

RE: When to get Prof. Liab. Ins.?

"Thus, if sued, the theory goes, the suit must be to the business and the owners of that business are personally protected by the corporation"

You can try to do all that, but lawyers are not idiots, and they've probably seen every single possible dodge that exists for trying to avoid liabilities. To truly insulate your personal property requires an enormous setup to ensure that it survives even the most cursory audit or discovery. Here's one lawyer's view of things:
http://www.helsell.com/faq/faq-asset-protection-pl... My read on that is that if you want to "go naked," you need to get divorced, to protect your spouse.

TTFN
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Of course I can. I can do anything. I can do absolutely anything. I'm an expert!

RE: When to get Prof. Liab. Ins.?

beej67 - not sure about that - my comment was about protecting the individual - not the corporation.
The corporation should definitely have the insurance.

I've never held PL insurance for myself personally...my firm always has had the PL insurance.

But as IRstuff comments above - some states like California don't allow the LLC to protect the person.

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RE: When to get Prof. Liab. Ins.?

It was explained to me that a company that holds itself out to the public as offering engineering services can (and should) provide PL insurance for any engineers in the company. The company I worked for was an Oil & Gas company that did not offer engineering services, so they were precluded by law from providing professional liability insurance. It all depends on that "holding yourself out" language like always.

I looked into the LLC and it only costs a nominal amount to set up, but what do you get for that nominal fee? The way it looked to me is:
  • A requirement to pay myself a salary instead of an ad hoc distribution (changing your salary requires a paper trail).
  • A requirement to distribute excess profits periodically as "dividends"
  • A tax form to file for the corporation (and for them to pay taxes on the dividends, you also pay taxes on them).
  • Absolutely zero protection from professional liability suits (it would protect you if someone trips on your property, but that is about it).
I've been organized as a sole proprietor for 11 years now and do not regret picking that organization for an instant.

SteelPE, I'm really doing quite well, but the last few years have been phenomenal (until 2014) and the budget income is about 3 times what I really need to live on and most months I only take out about 1/3 of the budget.

David Simpson, PE
MuleShoe Engineering

In questions of science, the authority of a thousand is not worth the humble reasoning of a single individual. —Galileo Galilei, Italian Physicist

RE: When to get Prof. Liab. Ins.?

I think the protection offered by LLC's is drastically different in different states in the US.

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RE: When to get Prof. Liab. Ins.?

Maybe, but in the 4 states I looked into, the LLC (or SubChapter S, etc) structure provided identical insulation between a P.E. and professional liability--none.

David Simpson, PE
MuleShoe Engineering

In questions of science, the authority of a thousand is not worth the humble reasoning of a single individual. —Galileo Galilei, Italian Physicist

RE: When to get Prof. Liab. Ins.?

(OP)
After speaking with my potential business partner, he is expecting me to give my engineering opinion. I will be producing reports, but not all of the time. With this information, he thought I would not need Professional Liability Insurance, but I should get general liability insurance in the case that I damage property while inspecting.

With this type of scenario, do you agree with the above about my insurance needs?

RE: When to get Prof. Liab. Ins.?

This is a joke, right? There have been 23 posts, mostly from people who have shelled out the thousands of dollars for PL insurance because we think it is the right risk/reward mix for us, and then you want an endorsement for the opposite position. Are you really that needy? If your mind is made up, why do you need us? If you are still trying to get validation call your mother.

David Simpson, PE
MuleShoe Engineering

In questions of science, the authority of a thousand is not worth the humble reasoning of a single individual. —Galileo Galilei, Italian Physicist

RE: When to get Prof. Liab. Ins.?

zdas04,

Your post about the LLC is pretty much the reason why I chose to be a sole proprietor rather than an LLC. I had a nightmare of a time dealing with states and corporations in the past and didn't want to go in that direction in the future. Plus some states I deal will allow sole proprietors to file their COA free. I also figured that any skillful lawyer would pierce the corporate shield if needed so why bother.

StructuralE

Whether or not you are giving an report with your opinion or not you could still be found at fault if something goes wrong. I did a fire escape evaluation the other day. I provided a letter (in your case a report) of my opinion of the condition of the fire escape gave a set of repairs needed. If something happens to the fire escape within the next few years I would more than likely be sued.

RE: When to get Prof. Liab. Ins.?

Structural, you should be speaking to a lawyer about this, not a business partner.

Maine EIT, Civil/Structural.

RE: When to get Prof. Liab. Ins.?

So. This is the majority of the work I do.

1. I have insurance because, to be blunt, I think it's just stupid not to. What happens when the report turns into a repair detail, and they sue you over something? Yes, insurance costs some money, but I live in a state where anyone touching any part of a project can be found liable for the entire amount. I am set up as an S-Corp to keep everything separate, but I just don't want that added stress. ASCE has some good deals on insurance but I found a local firm that was cheaper for more coverage.
2. I also highly recommend always writing a report. That way, the owner can never come back and say "but Structural said 50" when you actually said 15 and something fell apart.
3. Always, always, get a signed written contract. You're WAY less likely to get paid without one, especially if people don't like what you've said.
4. Find a good local construction lawyer and get advice on setting up your company, using a contract, getting insurance, and being there to write letters for you when needed.

I've found more direct references come from realtors, not the inspectors themselves, if you're looking to seriously do structural inspections. 95% of my contracted clients are the buyers or sellers, referred by realtors or inspectors. Good luck.

Please remember: we're not all guys!

RE: When to get Prof. Liab. Ins.?

Quote (SLTA)

95% of my contracted clients are the buyers or sellers, referred by realtors or inspectors. Good luck.

This is 100% true, my boss gets 95% of his work because banks or realtors referred the buyer or seller to our company.

Maine EIT, Civil/Structural.

RE: When to get Prof. Liab. Ins.?

I think it is important to have insurance to protect the client as well as the engineer. What happens to the client when there is a legitimate claim and the engineer/ engineering firm has no assets or insurance? Having insurance just seems like the right thing to do.

RE: When to get Prof. Liab. Ins.?

We are paying a little over $2k/year for professional and general insurance. Why not get a quote to see how much it would be with some general numbers? I was told its common to go naked for the first year or so. Because once you get insurance you are now a larger target. How many jobs does it take to pay off the insurance in a year? How much side money are you looking to make? I would get it for certain types of work asap, like an inspection person. Home inspectors don't seem to be liable for anything. Ours was somewhat useless. But I would expect a structural inspector to be used in the event of real issues with a home.

B+W Engineering and Design | Los Angeles Civil Engineer and Structural Engineer http://bwengr.com

RE: When to get Prof. Liab. Ins.?

brandonbw,

Most home inspectors I know pay serious money for insurance. My home inspector, a Certified Engineering Technologist was sued. He advised a client to empty an old fuel tank and remove it from their basement. The people who removed it did not empty it, and I guess they dropped it.

He won the court case. Does insurance pay for the lawyers in a case like this?

--
JHG

RE: When to get Prof. Liab. Ins.?

If it was $2k for insurance I'm sure there wouldn't be a question however, my insurance runs much much higher than that. I imagine it has to do with the type of work being done where you are a civil and I am a structural which is in line with the OP.

RE: When to get Prof. Liab. Ins.?

Believe it or not we checked the box on structural engineering. We are maxed out too at $2mil. Maybe our USAA, was able to make an account but never in the military, discount is more than I thought it was. We are using Hartford. Deductible isn't the highest either. We did shop around and got wildly varying quotes. I guess if we were bringing in millions/year this would change things. I have no problem with that.

I don't know how insurance is finally handled as we haven't had to use it yet. I know one company that has been around over 50 years and they were in lawsuits 3 times, none of them their fault. Most of that time they were doing surveying, structural and grading.

I haven't heard of a story with someone going naked and getting sued. I wouldn't be able to sleep thinking about that.

B+W Engineering and Design | Los Angeles Civil Engineer and Structural Engineer http://bwengr.com

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